Company Memo Shows Manipulation of Stock Option
Dates

July 12, 2006 (PLANSPONSOR.com) - A memo between
Sycamore Networks Inc. employees discusses how they could
manipulate the dates of stock-option grants to issue them at
lower prices while hiding their actions from company
auditors.

The Wall Street Journal reports that Stephen
Landry, a former human-resources director at Sycamore,
revealed the memo, and it has been turned over to the
Securities and Exchange Commission (SEC). In a lawsuit
filed last month, he claimed the company terminated his
employment for revealing the memo to executives and
complaining about the company’s stock-option
practices.

The memo discusses options grants to six Sycamore
employees in late 2000, at a time when its stock price
was falling, according to the WSJ. Most of the six
employees were new hires, and the memo says the company
promised some that they would receive options at the
lowest price of the quarter.

According to the news report, the memo also
discusses ways to alter employees’ start dates so they
could get lower-priced options, and
it evaluates the risk that each of the individual
changes would be discovered by auditors.

Specifically, the memo discusses changing the hire
date of Ed Zaval, a vice president of customer service
who “was promised his stock option grant would be issued
at the low of the quarter price.” Under the category
“risk assessment” the memo says, “Low risk: Senior level
employee and the risk of exposure to this agreement is
low. No audit risk.”

Concerning another item in the memo regarding a
change to the initial offer made to a human resources
employee, the memo says the change was a low risk partly
because of a relationship the employee had with a chief
executive of another company. According to the memo,
“that could work to our advantage should the risk of
exposure of this agreement surface.”

According to the memo, options to another employee,
Jinendra Ranka, were reissued, and the original issue was
deleted from the system. This move was rated as high risk
since the original grant was included in a previous audit
and records would no longer match. Ranka told the WSJ
that the reissue was part of a repricing for all
employees and, “[t]hey were just trying to make sure that
everyone was fairly compensated.”

Landry claims when he was told to change the hire
dates of various employees in order for them to receive
stock option grants at lower prices, he refused and was
replaced. He says he was allowed to stay on at the
company as an adviser and was promised a $10.8 million
employment agreement and severance package, according to
the news report. He claims the company terminated the
agreement in June 2005 partly because he brought up
improper activity at the company.